Brookfield Renewable Partners (BEP 1.13%) spent $550 million last year on acquisitions -- including increasing its stake in TerraForm Power (TERP +0.00%), development projects, and unit buybacks. Those growth-focused investments, when combined with its cost-cutting initiatives and stronger market conditions, enabled the renewable power company to grow its funds from operations by more than 40% during the fourth quarter, pushing its full-year total 14% above 2017's level.
Digging into the numbers
|
Metric |
Q4 2018 |
Q4 2017 |
Change (YOY) |
|---|---|---|---|
|
Funds from operations |
$206 million |
$143 million |
44.1% |
|
FFO per unit |
$0.66 |
$0.46 |
43% |
Data source: Brookfield Renewable Partners. YOY = year over year.
Brookfield Renewable Partners benefited from across-the-board growth in its three operating segments during the fourth quarter:
Data source: Brookfield Renewable Partners. Chart by the author.
The company's core hydropower business generated the largest supply of FFO, which grew 21% from the year-ago period thanks to an 11.5% increase in generation due to an improvement in North America as well as the impact of a new hydro facility in Brazil that it brought online during the year. For the full year, though, FFO slipped 2.2% to $671 million due to weaker electric generation in North America, especially during the second quarter, as a result of less rainfall compared to the year-ago period.
FFO in the company's wind operations surged 82% from last year's fourth quarter and 52% for the full year, thanks to higher generation in all regions due in large part to acquisitions, which have tripled its installed capacity over the past 18 months. Not only did the company benefit from its increased investment in TerraForm Power, which helped boost its North America and Europe operations, but it also saw benefits from its stake in TerraForm Global, which added Asia into the fold.
Finally, FFO from its solar, storage, and other operations grew 71% year over year and nearly 400% compared to 2017's level due to its investments in the TerraForm companies.
Image source: Getty Images.
A look at what's ahead
While new investments were a big driver last year, Brookfield Renewable Partners is currently in the midst of a capital recycling program, which it unveiled during the third quarter. The company is selling a 50% stake in a select portfolio of Canadian hydroelectric assets, a small wind development project in the U.K., and some non-core assets in South Africa, Thailand, and Malaysia. These asset sales will help boost the company's liquidity up to $2.2 billion.
These sales are part of the company's strategy to self-fund growth going forward. In previous years, Brookfield issued new equity to help pay for acquisitions. However, with its unit price trading at a significant discount to the value of its assets, the company aims to sell stakes in mature assets and then reinvest that cash into higher-returning development projects and acquisitions, with it targeting to deploy around $700 million annually on new investments. This strategy should make it even easier for the company to achieve its long-term goal of generating 12% to 15% total annual returns for its unitholders.
A strong end to a solid year
Brookfield Renewable Partners delivered strong fourth-quarter results thanks to recent acquisitions and better weather conditions for hydropower generation in North America, which helped power a double-digit increase in its full-year results. Meanwhile, the company remains well positioned for continued growth in 2019. While recent asset sales will negatively affect results in the near term, they'll provide the company with cash to redeploy in higher-returning opportunities elsewhere that should power stronger growth in the future. That growth is among the many reasons this is one of the top stocks in the renewables space.
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